National economy sparked Clinton win in 1996

Just as the economy helped evict George Bush from the White House four years ago, it renewed President Clinton's lease in 1996.

Jobs were plentiful. Incomes rose. The stock market marched further into record territory.

"It all suggested to a significant number of voters that Clinton's economic stewardship was acceptable and there really wasn't any need to change leadership," said William V. Sullivan Jr., director of money market research for Dean Witter Reynolds Inc. Many Americans had an "if it ain't broke, don't fix it, type of attitude."

How much of the credit does Mr. Clinton truly deserve? Will the current economic expansion - already the third longest in the country's history - continue during his second term, or through 1997, for that matter?

Only two other presidents this century - John F. Kennedy and Lyndon B. Johnson - have avoided recessions while in office. No two-term president has managed to escape one.

Some believe Mr. Clinton will rewrite history. Forty-four top economic forecasters surveyed recently by the National Association of Business Economists predicted the expansion that began in March 1991 would continue into the 21st century, with growth averaging 2.5 percent over the next five years.

Others believe the current cycle is winding down. "At 67 or so months, one can talk intermittent

ly of the end of the cycle because you have the dynamics of it," said Kathleen Stephansen, senior economist at Donaldson, Lufkin & Jenrette Securities Corp. "What you don't have anymore is this pent-up demand that drives consumption."

Since World War II, economic expansions have averaged 60 months. The longest lasted 106 months, from February 1961 to December 1969, a period that included much of the Vietnam War. The last was 92 months, from November 1982 to July 1990.

Heading into 1997, the economy does appear to be moderating.

Recent data shows new home sales plunged nearly 9 percent in October. Unemployment climbed to a four-month high of 5.4 percent in November, after hovering near 5 percent in August.

The gross domestic product - the total output of goods and services and the main gauge of economic growth - rose at a weaker-than-estimated 2 percent annual rate in the third quarter, less than half the nearly 5 percent pace in the April-to-June quarter.

Most economists believe GDP will average 2.5 percent growth for all of 1996 and ease to between 2 percent and 2.25 percent in 1997. A year-end survey by the Federal Reserve survey also portends slow, steady growth, leaving many to predict little change in near-term monetary policy as well.

The year ends with relatively low interest rates, around 7.5 percent for a 30-year fixed-rate mortgage, and low inflation, around 3 percent.

Other positive economic signs linger: Consumer confidence is at a seven-year high. The manufacturing sector of the economy remains at a five-month high in terms of growth. And the stock market has continued to break records, with the Dow Jones industrial average rising nearly 500 points in November alone.

"I'd say the economy is in fine shape from a long-term perspective," said Richard Berner, chief economist for Mellon Bank in Pittsburgh. "There are no major imbalances in the economy. I don't see it as fundamentally weak or on a strong upswing."

What could change all that, he and other economists say, is if the Democratic president and the Republican-controlled Congress voted into office in November gridlock further on spending policies, particularly in reducing entitlements programs such as Medicare or Medicaid.

"Many fear he (Clinton) will reveal himself to be a true liberal and expand them, but I don't think the case," Mr. Berner said.

Most economists believe Mr. Clinton has governed more as a moderate Republican in economic matters, as evidenced by his surprising kinship with Alan Greenspan, a Republican whom Mr. Clinton reappointed to another term as Fed chairman.

"The most important attribute of his first term was his willingness to implement policies early in his tenure to narrow the budget deficit. The tax hike was incorporated in '93 legislation. That also did help," Mr. Sullivan said.

Mr. Clinton can take credit for cutting the federal budget deficit in each year of office. It also was during his tenure that median household income rose for the first time in six years - 2.7 percent in 1995.

Yet the economy under Mr. Bush wasn't bad, either.

By the 1992 election that brought Mr. Clinton in office, the economy was slowly recovering from the previous recession, with GDP growing at a rate of 2.7 percent. The trade deficit had been cut dramatically, interest rates and inflation were holding steady, although the jobless rate was up around 7.5 percent.

Raymond A. Worseck, chief economist for A.G. Edwards & Sons Inc., said the American public might have been looking for even more or an economic boom, particularly in terms of job growth.

"This has been an usually ... soft business expansion," he said. "Normally in the postwar period where you come through a recession, you ... get several quarters of really spectacular growth, and that didn't happen."

Robert Brusca, chief economist Nikko Securities International Co., said Mr. Bush's mistake was to downplay the economy to the American public.

"Bush was too quick to ... say there was nothing to worry about," he said. "In some ways, his policy was wonderfully correct. He could have accelerated (the economy) much more and pushed us back into a recession.

"That's the irony of it: Bush's temperance clearly helped Clinton four years later."